Addressing Blockchain’s Energy Crisis

The secure nature of blockchain means that it consumes an incredible amount of power

One aspect of blockchain that has hit the headlines recently is its colossal energy consumption. Incredibly, the amount of power used in a year by bitcoin alone is on a par with the whole of Singapore. What’s more, with the majority of bitcoin mining taking place in China, that electricity is overwhelmingly produced by coal fired power stations. This is blockchain’s dirty (but not so secret) secret.

As the blockchain – and specifically bitcoin – has grown in popularity, the algorithms behind the technology have become more difficult for miners to solve. This locks blockchain into a never ending spiral of increasing energy consumption. If we want blockchain to prove its potential in the digital world, then this energy question needs addressing in the physical world – and fast. For blockchain to survive, it has to find a more efficient and sustainable way.

Changing times call for changing mines

One answer to the blockchain energy crisis is to change the way transactions are verified in the system. In the traditional bitcoin model, network users solve complex cryptography puzzles to verify transactions, earning cryptocurrency tokens as a reward. This is known as mining. The computing power that is required to solve these puzzles is what makes blockchain so energy hungry. If developers can change this verification system, then they can change the amount of energy that miners have to expend.

Ethereum is planning on doing just that. In August 2017, the Ethereum Foundation released an implementation guide for a new kind of blockchain algorithm. This involves a shift from a mining – or Proof of Work (PoW) – algorithm, to a Proof of Stake (PoS) based system. In this kind of protocol, miners are replaced with forgers – network members who own a blockchain based asset. Just like miners, the role of forgers is to validate transactions on the network. However, rather than competing with each other to process a transaction, forgers are randomly selected for the task from a pool based on the amount of assets they hold. In Ethereum’s case, the more ether tokens a user holds, the more likely it is that he or she will be selected to process a transaction. It is easier to validate a forger’s stake in a certain asset than it is to solve the complicated algorithms involved in mining, so this kind of verification system uses far less computer energy. What’s in it for the forgers? Since there are no block rewards, they are entitled to collect transaction fees.

Trouble in blockchain paradise

The problem with this PoS system is that it creates an inherent inequality within the network. Directly contravening the spirit of community and egalitarianism that has always underpinned blockchain, PoS puts the most power into the hands of the users who hold the most assets. Since the amount of cryptocurrency a user holds is directly related to their chances of earning more tokens, the system is also fundamentally biased in favour of the most well off. What’s more, in order to avoid spam on the network, users wishing to participate in processing transactions must hold minimum stakes of assets. The official Ethereum minimum stake requirement has not yet been released but potential figures have ranged from 10 to over 1000 ETH – a sum that would exclude all but the biggest cryptocurrency traders from verifying transactions on the network.

Another fundamental issue with a shift to a PoS algorithm is that it makes verifying transactions less profitable for users. Even before the eventual move to PoS – which is expected to occur at some point in 2018 – changes have been made to reduce the value of Ethereum mining. Firstly, the block reward value in the Ethereum network was recently lowered from five to three ETH. Secondly, every 100th block will soon be validated by PoS rather than by the traditional PoW mining – meaning no reward at all. This raises the question of whether or not users will simply switch to other decentralised networks, in the hunt of more profitable coins to mine.

Vitalik Buterin, the founder of Ethereum, has called devising an effective PoS system “one of the hardest problems in cryptocurrency development.” But with changes to the network expected this year, it looks like he has achieved this significant goal. However, if Ethereum’s quest to solve the blockchain energy crisis only succeeds in driving users away to other energy guzzling networks, then it will be back to square one for Buterin and co. For blockchain to cut down on its energy use, a concerted effort is required from all developers. Can blockchain go green? The question remains largely unanswered.

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